Bond Investors in the Guangdong-based telecom company Cosun Group founded by billionaire Wu Ruilin are fortunate as the guarantor, Zheshang Insurance, has been forced to repay after Cosun defaulted on a bond issue.
But investors in Real Gold Mining (00246.HK), a Hong Kong-listed firm of Wu are probably going to stay trapped even after the shares have been suspended from trading for more than five years.
Real Gold Mining was listed in Hong Kong in February 2009. The IPO was a big hit, receiving 68 times oversubscription and priced at the top end of the indicative range.
The stock soared over HK$15 in 2010 and its market cap was nearly HK$20 billion.
But all of a sudden, Real Gold Mining was suspended in May 2011 due to accounting fraud.
The company was exposed by the media to have used the assets of its subsidiaries as collateral for bank loans extended to Wu’s flagship company Cosun, which the firm admitted.
The company has since then failed to convince the authorities that it has cleaned up its bad practices and has therefore failed to get the approval to resume trading all these years.
Based on the last price before shares went suspended, at least HK$3 billion of investor funds have been trapped.
Established in 1992, Cosun was said to be the nation’s largest fixed-line telephone maker for corporates. However, the company has been struggling since the smartphone era started.
It has tried to tap into the smartphone market by making heavy investments in R&D and high-end telecommunications technology. All these efforts failed.
The illegal pledge of Real Gold Mining assets was part of the rescue attempt to raise funds for Cosun.
After the suspension, Wu turned to the loosely regulated private bond market to access more funds, luring retail investors with high interest rate.
Had the Securities and Futures Commission conducted more thorough investigation into the case and shared information with mainland’s securities watchdog, Cosun would probably have been denied access to the private bond market and a default could have been avoided.
This article appeared in the Hong Kong Economic Journal on Dec. 30
Translation by Julie Zhu
[Chinese version 中文版]
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